Relating to Real Estate

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2016 Maryland Real Property Legislation

2016 MARYLAND REAL PROPERTY LEGISLATION

The 2016 Maryland legislative session ended on April 12th. This year 2,817 bills were introduced, and 834 passed. Governor Hogan had until June 1 to sign bills, veto them, or permit them to become law without his signature. Below are summaries of bills of interest to the Maryland real estate community that were enacted and will become law. Two of these bills that are in the list—HB1192 and HB1363—will become law without the Governor's signature. At the end of this issue of Relating to Real Estate is a summary of six bills that were referred to Interim Study by the House Environment and Transportation Committee. We may see them next year.

If you would like to discuss these new laws or to find out how they will affect you, please contact any of the members of Gordon Feinblatt's Real Estate Practice Group.

Timothy D. A. Chriss

(410) 576-4237

David H. Fishman

(410) 576-4234

Edward J. Levin, Chair

(410) 576-1900

Searle E. Mitnick

(410) 576-4107

Peter B. Rosenwald, II

(410) 576-4193

Seth M. Rotenberg

(410) 576-4179

William D. Shaughnessy, Jr.

(410) 476-4092

Y. Jeffrey Spatz

(410) 576-4124

Richard H. Topaz

(410) 576-4004

Danielle S. Zoller

(410) 576-4036

Bills That Will Become Law in 2016
Baltimore City - Abandoned Property - Tax Sales - Ground Rent
HB 385 (Chapter 484)
(effective July 1, 2016)
This Act requires the tax collector in Baltimore City to sell the whole fee simple interest in an abandoned property to a purchaser at a tax sale when the property is subject to a ground rent, regardless of the amount of the minimum bid, thereby extinguishing the ground rent with the transfer. The Act modifies existing law that provided that the ground rent for an abandoned property would only be extinguished after a tax sale when the minimum bid was less than the lien amount. The Act also specifies that abandoned property consists of either a vacant lot or improved property that Baltimore City has cited on a housing or building violation notice as unfit for human habitation.

Property Tax - Property Transferred to New Owner - Appeals
HB 488 (Chapter 487)
(effective July 1, 2016)
This Act requires a supervisor of assessments or its designee to hold a hearing on an appeal of a change in the value or classification of property that is transferred to a new owner by the later of 90 days after receiving the written appeal or 90 days after the date that a deed evidencing the transfer is recorded.

Real Estate Brokers - Licensure Requirement - Exemption for Lawyers
HB 747 (Chapter 276)
(effective October 1, 2016)
This Act alters an exemption that currently allows licensed Maryland attorneys to share in the real estate brokerage commissions related to the sale of their own homes. Maryland law requires an individual to obtain and maintain a license as a real estate broker in order to provide real estate brokerage services in Maryland (and to obtain any fee related to real estate brokerage services). Existing Maryland law includes exemptions from this requirement for certain financial institutions, attorneys, home builders, agents of licensed real estate brokers, certain business sellers (where real estate is leased, not owned), and certain individuals who subdivide and sell unimproved property. This Act preserves the exemption for licensed Maryland attorneys to participate in real estate transactions if they are not regularly engaged in real estate brokerage activities and do not advertise that they are in the business of providing real estate brokerage services. This Act, however, eliminates the ability for attorneys to share in the real estate brokerage commissions from the sale of their own homes.

Residential Real Property - Sales Contracts - Notice of Water and Sewer Charges
HB 989 (Chapter 638)
(effective October 1, 2016)
This Act requires that a contract for the resale of residential real property that is served by public water or wastewater facilities for which deferred water and sewer charges have been established by a recorded covenant or declaration must contain a specified form of notice. The Act provides penalties for failure to comply, including that if the violation is discovered before settlement, the buyer is entitled to rescind the transaction and receive a return of the full deposit; if the violation is discovered after settlement, the seller is required to pay the full amount of the fee or assessment that was not disclosed unless the seller was never charged a fee or assessment. The notice provisions of this Act are inapplicable in a county that has adopted a substantially similar notice requirement.

Landlord and Tenant - Security Deposit - Contents of Lease
HB 1059 (Chapter 643)
(effective October 1, 2016)
Existing Maryland law requires a landlord in a residential lease to provide a receipt for any security deposit related to the tenancy. The required receipt must contain specified information describing the tenant's rights concerning the security deposit. Because existing Maryland law does not specify that a security deposit must be paid at the time a residential lease is signed, tenants may not receive the required security deposit receipt until after the lease has been signed. This law requires that the security deposit receipt be included in the residential lease, essentially prohibiting residential landlords from requesting a security deposit after a lease has been signed.

Real Property - Condominiums and Homeowners Associations - Resales - Disclosures and Fees
HB 1192 (Chapter 735) (becomes effective without Gov. Hogan's signature)
(effective October 1, 2016)
This Act changes the required contents of the certificate that a unit owner must furnish to a purchaser on resale of a condominium unit or upon resale of a lot. The Act specifies a maximum fee of $250 that a council of unit owners or a homeowners association may charge for furnishing a certificate to a unit owner or upon resale of a lot. It permits a fee of up to $100 for an inspection of a condominium unit. The Act permits a council of unit owners or a homeowners association to charge $50 for the delivery of the certificate or information within 14 days and $100 for the delivery of the certificate or information within 7 days. It requires the Department of Housing and Community Development to adjust the maximum fee that a council of unit owners may charge for furnishing a certificate to a unit owner or a homeowners association may charge for furnishing information based on changes in the Consumer Price Index.

Property Tax - Appeals - Provision of Information to Taxpayers
HB 1363 (Chapter 737) (becomes effective without Gov. Hogan's signature)
(effective July 1, 2016)
This Act requires that a person making a property tax appeal before a supervisor of assessments must receive specified information from the State Department of Assessments and Taxation regarding the property that is the subject of the appeal and a specified sales analysis at least 14 days before a hearing. If the taxpayer does not receive the information timely, the appeal may be postponed.

Anne Arundel County - Property Tax Deferrals - Payment Due Date
SB 8 (Chapter 327)
HB 37 (Chapter 328)
(effective July 1, 2016)
These Acts permit Anne Arundel County to change the due date for payment of deferred Anne Arundel County property taxes if the owner no longer satisfies specified income eligibility requirements.

Local Government - Clean Energy Loan Programs - Commercial Property Owners - Renewable Energy Projects
SB 173 (Chapter 534)
HB 105 (Chapter 535)
(effective October 1, 2016)
In 2009, the General Assembly authorized counties and municipalities to establish clean energy loan programs to provide loans to residential property owners and commercial property owners under certain circumstances. Chapters 534 and 535 expand the types of commercial loans that a clean energy loan program may cover by removing the limit on electric generating capacity for renewable energy projects financed by commercial property owners. Because a clean energy loan program must require a property owner to repay a loan through a surcharge on the owner's property tax bill, lien priority issues can arise under Maryland law. However, the existing law makes it clear that for commercial property clean energy loans (or PACE loans), the holder of a mortgage or deed of trust (i.e., the secured party) on the affected commercial property must expressly consent before clean energy loan payments may be collected through a surcharge on the owner's tax bill. This new law does not change the requirement for prior express consent from the existing secured party.

Real Property - Senior Apartment Facilities - Conversion
SB 241 (Chapter 543)
(effective October 1, 2016)
This Act requires a landlord to provide written notice to tenants of senior apartment facilities at least 180 days before converting a senior apartment facility into an apartment facility for the general population. After receipt of such a notice, a tenant has the right, before the conversion date, to terminate the tenant's lease after giving at least one month's written notice to the landlord. A landlord may not withhold any portion of a tenant's security deposit for rent that would have become due under any remaining portion of the lease.

Agricultural Land Transfer Tax - Calculation
SB 306 (Chapter 372)
HB 833 (Chapter 373)
(effective June 1, 2016)
In Montgomery County, Maryland v. Jean K. Phillips, 445 Md. 55, 124 A.3d 188 (2015), the Court of Appeals held that there is a ceiling on the amount that can be charged for the agriculture transfer tax on the sale of property, and that ceiling includes the 25% State surcharge plus the amount that the applicable county can charge. Therefore, in that case Montgomery County had to reduce the amount of the agricultural tax paid to it so that the ceiling would not be exceeded.

Under these Acts, local jurisdictions will not have to include the 25% State surcharge when calculating the agricultural transfer tax rate limit. Accordingly, this will increase local agricultural land transfer tax revenues, which Montgomery County v. Phillips inhibited.

Real Property - Actions to Quiet Title
SB 509 (Chapter 395)
HB 920 (Chapter 396)
(effective October 1, 2016)
These Acts provide a procedure and rules that will be applicable throughout the State of Maryland when a person seeks to quiet title on real property. Before these Acts, there was no comprehensive law that concerned quieting title, or judicially establishing the ownership of and rights to real property when those issues are in doubt or there is a cloud on title. These Acts provide for venue and the application of the Maryland Rules in a quiet title action and set forth requirements for a complaint, an answer to a complaint, naming of defendants, joinder of parties, and service of process in an action to quiet title. The Acts provide that mortgagees and trustees, beneficiaries, and assignees of record of deeds of trust are required to receive notice of a complaint filed to commence a quiet title action. The Acts also require the recording of a judgment in an action to quiet title in the land records of the county in which any portion of the property is located.

Tax Sales - Condominium Assessments and Homeowners Association Fees
SB 591 (Chapter 565)
HB 970 (Chapter 566)
(effective July 1, 2016)
These Acts enable condominium and homeowner associations to receive notice of tax sale proceedings affecting properties in the associations, and to enable such associations to collect assessments from the tax sale purchasers once a final judgment has been entered, regardless of whether a foreclosure deed has been recorded. In a tax sale action to foreclose the right of redemption on a property, the Acts require the plaintiff to send specified notices to a condominium association, as well as to a homeowners association, if the property at issue is part of the association. Notices must be sent to the last reasonably ascertainable address of the association. These Acts also require that, once a judgment in an action to foreclose the right of redemption is granted, the plaintiff in the tax sale action immediately becomes liable for (and may be sued for) the payment of assessments or fees charged by a condominium association or a homeowners association from the date of judgment, even if the foreclosure deed vesting title in the plaintiff has not yet been recorded.

Recordation and Transfer Taxes - Transfer of Controlling Interest - Exemptions
SB 597 (Chapter 223)
HB 1226 (Chapter 224)
(effective July 1, 2016)
These Acts alter the exemption from recordation and transfer taxes to provide that a transfer of a controlling interest in a real property entity is not subject to recordation and transfer taxes if the ownership interests in the transferee entity are owned, directly or indirectly, by the same persons and in the same proportions as those persons own, directly or indirectly, the transferor entity or the real property entity the controlling interest of which was transferred. This will enable transfers of controlling interests "within the family" (that is, where there is a common ultimate parent) to be made without incurring recordation or transfer tax. It also will permit transfers of controlling interests of entities that are not structured as corporations to be done without imposition of recordation or transfer taxes in certain situations.

Real Estate Licensees - Verification of Service Provider Licensing Status
SB 824 (Chapter 432)
HB 1453 (Chapter 433)
(effective October 1, 2016)
These Acts provide, on one hand, that a licensee of the State Real Estate Commission does not need to verify that a specified service provider (which term includes a mortgage lender, mortgage broker, real estate appraiser, home inspector, plumber, electrician, and HVAC contractor) is currently licensed by the State to perform the services if the licensee offers the name of the service provider to a client in the provision of real estate brokerage services. On the other hand, the Acts require that a licensee of the State Real Estate Commission must verify annually that a home improvement contractor is licensed by the Maryland Home Improvement Commission.

Real Estate Brokers - Agency Relationships in Residential Real Estate Transactions - Disclosure and Consent Requirements
HB 1469 (Chapter 311)
(effective October 1, 2016)
This Act alters the requirements for a specified disclosure that a licensee of the State Real Estate Commission (the "Commission") must make under specified circumstances. The Act provides when a disclosure must occur. The Act also requires the Commission to prepare and provide a required notice and requires a subagent to make certain disclosures.

Clean Energy Loan Program - Residential Property - Study
SB 912 (Chapter 592)
HB 387 (Chapter 593)
(effective June 1, 2016)
These Acts require the Maryland Clean Energy Center (the "Center") to conduct a study to determine design and implementation strategies for a residential clean energy loan program. The study must include consideration of whether strategies will work advantageously with loans made by private lenders for residential energy efficiency and renewable energy projects. The Center is required to consult with the Maryland Energy Administration, the Maryland Association of Counties, the Maryland Bankers Association, clean energy loan providers, the Chesapeake Climate Action Network, and the Sierra Club. The Center is required to report its findings and recommendations to the General Assembly on or before October 1, 2016.

Maryland authorizes PACE loans (that is, loans under Property Assessed Clean Energy Programs) on commercial properties in Maryland but only with the consent of any holder of a mortgage or deed of trust on the property. With a PACE loan, the property owner repays the loan with a surcharge on the owner's property tax bill. The surcharge is the amount that permits the local government to recover the costs associated with issuing bonds to finance the loan and costs associated with administering the loan. Fannie Mae and Freddie Mac are prohibited from purchasing residential mortgage loans if there is an unsubordinated PACE loan on the property. The study required by these Acts is in connection with the legislature's consideration of PACE loans on residential property in Maryland.

Bills That Were Referred to Interim Study
by the House Environment and Transportation Committee

The following bills were referred to interim study by the House Environment and Transportation Committee. Depending upon the results of the studies, these bills, or variations of them, may be introduced into the 2017 session of the Maryland General Assembly.

HB 1171
Foreclosed Property Registry - Responsibility for Maintenance of Residential Property, Registration Requirement, and Access to Registry
This bill would require that, on and after the filing of an action to foreclose a mortgage or deed of trust on residential property, the secured party will be responsible for maintenance of the property until the foreclosure sale occurs. The bill would require the secured party to submit a registration to the Foreclosed Property Registry within 30 days after the filing of a foreclosure action on residential property.

In its present form this bill is objectionable to mortgage lenders because the burdens of maintaining real property would shift to the foreclosing lender immediately upon filing of a foreclosure action. In many situations, mortgagors are in possession of property that is foreclosed, and they may not be comfortable with people entering their properties and houses before a foreclosure sale occurs. The bill does not specify what degree of maintenance is required, and whether it is limited to interior maintenance, exterior maintenance, or both.

HB 1286
Residential Property - Foreclosed Property Registry - Notification to Local Jurisdictions
This bill would alter the information that is required to be contained in the initial registration of a residential property in the Foreclosed Property Registry in the Department of Labor, Licensing, and Regulation (the "Department") to include the county in which the property is located. The bill would also require the Department to promptly send an electronic copy of the initial registration of a residential property to the appropriate county official and, on request, to the appropriate official of the municipal corporation in which the residential property is located.
HB 508 (SB 330)
Residential Property - Foreclosure Sale - Recordation of Instrument of Writing
This bill would require that a secured party record an instrument of writing transferring residential property by the later of 30 days after the entry of a court order ratifying a foreclosure sale of the residential property or 30 days after the entry of a court order resolving a specified motion. The bill would also provide that no transfer tax may be assessed on a secured party that records an instrument of writing transferring residential property within 20 days after the entry of the court order ratifying the foreclosure sale of the property.

This bill raises a number of issues. The purchaser at a foreclosure sale may be a third party, and that purchaser may not settle on the property promptly after a foreclosure sale. In such a case, the secured party would not be in a position to record a deed to the purchaser. The bill has an unusual "carrot" to avoid the transfer tax on a quickly recorded instrument. We are not familiar with a similar provision under Maryland law. Query: why would transfer taxes be exempted and not recordation taxes?

HB 810
Reduction of Lead Risk in Housing - Fees and Enforcement
This bill would increase the annual fee required to be paid to the Department of the Environment (the "Department") for certain affected properties from $30 to $75. The bill would also increase the processing fee required to be submitted with a report that a rental dwelling unit is lead free from $10 to $75. The bill would require that the Department use the additional revenue from the increase in fees to hire additional staff to conduct audits to verify satisfaction of the modified risk reduction standard of lead paint and spot checks of properties reported or verified as satisfying the modified risk reduction standards.

HB 1331
Environment - Reduction of Lead Risk in Housing - Blood Lead Level
This bill would reduce the elevated blood lead level at which an owner of affected property is required to satisfy the modified risk reduction standard so that on February 24, 2017 it would be one-half of the level that has been permitted since February 24, 2006.

HB 1412
Real Property - New Residential Property - Information on Renewable Energy Alternatives
This bill would require that, in a contract for the initial sale of a new home, the builder provide the purchaser with specified information about energy-saving alternatives for the home, including green roofing, solar photovoltaic panels or solar/thermal devices, rain gardens and bayscaping, home weatherization, and energy storage systems. The bill would also require that the builder facilitate the installation of any energy-saving alternative that the purchaser selects.